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Co-manufacturing is an outsourcing of the production process to the third-party company. The company does not produce the product and have no any equipment to produce it. In fact, it just resells the produced by third-party product to its customers. 


When co-manufacturing is triggered from a sale order as part of a production process, it requires the set-up of production resources, shop floors, logistic paths, etc. However, when a company performs no production in house, a co-manufacturing order can be triggered from a purchase order without all of the set up required for more complex production processes. 


The merchant will however need to set up a co-manufacturing location, create a work centre and connect it with that location, and create a Production BOM containing a single co-manufacturing operation.


Prerequisites

  • Production BOM is an advanced manufacturing feature. You will need to add the advanced manufacturing module to your DEAR base subscription to use this feature. 
  • Your co-manufacturing provider will need to be added to DEAR as a supplier.
  • Configure production process customisation settings. This will affect if replenishment orders for components are created automatically and if so, with what status.
    • If production process setting is Create production order: on order authorisation, production will be initiated from purchase order raised manually. If production process setting is Create production order: via smart ordering/MRP, production will be initiated only from MRP suggestions for purchase orders to meet demand. 
  • Production BOM (required)
  • Co-manufacturing (recommended)


Table of Contents


Add a co-manufacturing location

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Locations can be added and specified as co-manufacturing locations from General Settings → Reference Books → Locations and creating or selecting a locationThis location type defines the external location where a co-manufacturing operation should be executed. 


You will need at least one co-manufacturing location in order to raise co-manufacturing production orders from a purchase or a sale.


As this type of location is a purely informational, to notify a user during a Production Run where components should be transferred for contract manufacturing, co-manufacturing locations have some special properties:

  • Bins cannot be added to a co-manufacturing location.
  • The Default, Allow Reorder Stock Level, and Shop Floor checkboxes are disabled for co-manufacturing locations.
  • Co-manufacturing locations are not considered in any stock replenishment activities, e.g. Reordering (smart, reorder, backorder). 
  • Co-manufacturing locations cannot be selected in any task that is not connected to co-manufacturing. 
    • When creating sale orders, purchase orders, transfer orders, assembly/disassembly orders, and production order (for top level production location), co-manufacturing will not be available.
    • When a purchase order, sales order or transfer order is generated by a co-manufacturing operation, the location will automatically be set to the co-manufacturing location.


Connect work centre with co-manufacturing location

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Work Centres define the area where a production operation takes place within the business (for example, a specific workshop, room or section of the shop floor). Work Centres are set up from the Settings of the Advanced manufacturing module: Production → Settings → Work Centres


Here, you will specify if a work centre is a co-manufacturing location using checkboxes. There are two types of co-manufacturing location. 

  • Co-manufacturing purchase locations indicate co-manufacturers who carry out the entire production process for the merchant, while the merchant does not take part in production at all. Specifying this location is necessary to raise co-man production orders from a purchase. 
  • Co-manufacturing locations indicate co-manufacturers who carry out operations as part of the larger production process. For example, when a merchant performs several steps in-house, then sends a partially finished product to a co-manufacturer for additional steps, before sending the product directly to the customer or back to the merchant. Co-manufacturing operations are part of production orders raised manually or raised automatically from sales orders.


A location and work centre can be checked for both co-man and co-man purchase. 

  1. Click the + button to add a new work centre. 
  2. Enter a unique Work Centre Code
  3. Check the box to show that the work centre is a co-manufacturing location and/or co-manufacturing purchase location. You will need to select co-man purchase to raise production orders from a purchase order. 
  4. In the Name field, select your co-manufacturing provider. Your co-manufacturing provider will need to be added to DEAR as a supplier in order for it to be shown in the dropdown field. You will then be able to select your co-manufacturing provider and connect it to the work centre. 
  5. Next you can select the component procurement mode.
    • If the Buy/Sell procurement mode is selected, the supplier will then be converted automatically into a customer so it can be used for the sale order. 
    • If the Transfer procurement mode is selected, the supplier will not be automatically converted to a customer (it is not necessary as no sales orders are created with this method). 
  6. Consumption Bin defines where components should be delivered to execute the production process. Select a co-manufacturing location from the dropdown menu. 
  7. Save your changes.


Create a production BOM with a single co-manufacturing operation

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Raising a production order from a purchase requires the production BOM to contain only a single operation of Type: Co-manufacturing. If a Production BOM has multiple versions, the default version will be used. See Co-manufacturing for more detailed information about production BOMs where co-manufacturing is used as part of a larger production process. 


NOTE: It will not be possible to raise production orders from a purchase for products with other types of production BOM. Production orders can still be raised manually or from sale orders. 


When an operation is added to a product's Production BOM, the operation can be specified as Type:Co-manufacturing. A Work Centre for the operation must be selected from your connected co-manufacturing work centres.


Cycle time should refer to the average time spent on the order. Cycle time is not affected by the number of units produced. Planning/Scheduling of the Production Order is based on this cycle plus lead time for any replenishment purchase orders plus buffer if applicable.  


The co-manufacturing operation can have components, attachments, and notes, and must define one or more finished products of the operation. As co-man production orders raised from a purchase can only contain a single operation, inputs and outputs cannot be used in this scenario. 

  • Component: A component which is forwarded to the co-manufacturer for production of finished product.
  • Finished product: the expected from co-manufacturer result. Finished product can be Stock and Service product. Finished product should be a stock product.


Components can be drop shipped directly to the co-manufacturer, but it is not possible to drop ship finished products from the co-manufacturer to the customer for co-man production orders created from a purchase. 


Production Order can be automatically created only in the location set up for Purchase Order in the location field in the header.


Co-manufacturing with nested components

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Some production operations contain components which themselves must be produced. 

  • If the merchant has not configured production settings (factory calendar, resources, shop floor location, logistics path etc), no nested production orders will be created when co-man production order is raised from a purchase order. 
  • If the merchant has configured production settings, any nested production orders will be created as usual when a co-man production order is raised from a purchase. See nested production orders for more information. 


Some production operations contain components which must be assembled. 

  • If auto-assembly is not applied to the product's assembly BOM, nested assemblies will be generated only when customer has configured production settings as usual for their production process: shopfloor, resources, calendar, etc.
  • If auto-assembly is applied to the product's assembly BOM, the BOM will be exploded for the production run as a Phantom BOM. The assembly BOM components will be replenished if necessary and transferred or sold to the co-manufacturer for production. 


Dropship components to co-manufacturer

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If a component has Always Dropship or Optional Dropship enabled (go to DEAR Inventory → Inventory → Products → [selected product] to change a component's dropship settings), it can be delivered directly to the co-manufacturer from the supplier without delivery to shop floor or warehouse.

  • Optional Drop Ship: A purchase order with drop ship will be created automatically only when there are no components available in warehouse, connected to the co-manufacturing location.
  • Always Drop Ship: A dropship purchase order will be created automatically even if there are components available.


The dropship purchase order will be generated automatically when a co-manufacturing operation is started. If components are purchased from multiple suppliers, dropship purchase orders are generated for each supplier. 


NOTE: Dropship components to co-manufacturer can only take place if procurement mode setting is Buy/Sell of products



Scheduling/Planning of orders

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Time allocated to the production order for scheduling and planning is calculated as cycle time of the co-manufacturing operation + lead time for replenishment purchase order + manufacturing buffer. Cycle time for co-manufacturing is kept the same for all production quantities. 


When the purchase order contains a required by date, production orders are scheduled calculating capacity from the required date backwards. When the purchase order does not contain a required by date, production orders are scheduled calculating capacity from planned date forwards, using the purchase order creation date as the planned date. 


Workflow Examples

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In this stage, we will walk you through some examples using this feature, for both simple and advanced purchases. The workflow shown is slightly different if your purchase order is processed invoice first or stock first - this order can be edited from the purchase process customisation settings if necessary. 


Please note that in these examples, production process customisation settings have been set to automatic creation of replenishment transfer orders and purchase orders. If your settings have manual creation of replenishment orders, these will need to be created, authorised, and completed manually. 


Simple purchase - Invoice first

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Our first example is for a simple purchase processed with invoice first. The first step is to create a purchase order for product, selecting the co-manufacturer as the supplier. 


Add the product with the Production BOM to the purchase order. The Production BOM must only contain a single co-manufacturing operation for a production order to be raised from the purchase. Depending on your purchase process settings, you may need to have the co-manufacturer listed as a supplier in order to add this product to the order. 


Authorise the purchase order. 


This automatically creates a production order, no sales order is required. The production location is set to the purchase location and cannot be changed. If there are not enough components in stock to complete the production order, purchase order authorisation will also create replenishment purchase orders for out of stock components.


Completing and authorising the purchase invoice will start the production run and co-manufacturing operation for the production order that was just created. If the required quantity in the purchase invoice is different from the purchase order quantity, the production order will be updated to show the invoice quantity. 


When procurement mode is set to Transfer components to co-manufacturer, authorising the purchase invoice/starting co-manufacturing operation will also create a transfer order for the required components. When procurement mode is set to Buy/Sell of components, authorising the purchase invoice will create a sale order for the components instead with the supplier as a customer. 


NOTE: You can view related orders at any time by going to the Related Orders tab of the co-manufacturing production order, or of the purchase order that raised it.

Next, you will manually need to complete the replenishment purchase/transfer orders (if applicable), and when the components are in stock, manually complete the transfer order/sale order to send the components to the co-manufacturer. 


When the finished goods are received from the co-manufacturer, enter the Stock Received in the purchase order. Authorising stock received for all invoiced products will complete the co-manufacturing operation, production run, and production order. 


Simple purchase - Stock first

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NOTE: Processing a purchase order for co-manufacturing stock first requires some manual actions to start/finish production.


Our second example is for a advanced purchase processed with stock first. The first step is to create a purchase order for product, selecting the co-manufacturer as the supplier.


Add the product with the Production BOM to the purchase order. The Production BOM must only contain a single co-manufacturing operation for a production order to be raised from the purchase. Depending on your purchase process settings, you may need to have the co-manufacturer listed as a supplier in order to add this product to the order. 


Authorise the purchase order. 


This automatically creates a production order, no sales order is required. The production location is set to the purchase location and cannot be changed. If there are not enough components in stock to complete the production order, purchase order authorisation will also create replenishment purchase orders depending on your production settings. 


Authorising the purchase order will not start the production run automatically when purchase order is processed stock first. You will need to go to the production order and start the co-manufacturing operation manually. Access the production order raised from the purchase order quickly by going to the Related Orders tab, and start the co-manufacturing operation. 


When procurement mode is set to Transfer components to co-manufacturer, starting the co-manufacturing operation will create a transfer order for the required components. When procurement mode is set to Buy/Sell of components, starting the co-manufacturing operation will create a sale order for the components instead with the supplier as a customer. 

Next, you will manually need to complete the replenishment purchase orders (if applicable), and when the components are in stock, manually complete the transfer order/sale order to send the components to the co-manufacturer. 


When the finished goods are received from the co-manufacturer, enter the Stock Received in the purchase order and Authorise the stock received. Invoice quantity can not be edited after stock has been received.


NOTE: Changing the stock received and invoice quantity will automatically update the production run output quantity to match. However, component quantities and transferred quantities will not be changed. 


Next, complete and authorise the invoice. This will automatically fill in the production run output including quantity and costs. 


Finally, you will need to manually complete the co-manufacturing order of the production order. This completes the process. 


Advanced purchase - Invoice first

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If you plan to receive stock from the co-manufacturer in several deliveries, we recommend using an Advanced Purchase Order to process the shipment. This is best done by processing the Invoice First - we do not recommend Stock First processing for multiple stock receipt actions from co-manufacturing. 


Our third example is for a advanced purchase processed with invoice first. The first step is to create a purchase order for product, selecting the co-manufacturer as the supplier. You can start with Advanced Purchase, or start with a Simple Purchase and later convert this to an Advanced Purchase. 


Add the product with the Production BOM to the purchase order. The Production BOM must only contain a single co-manufacturing operation for a production order to be raised from the purchase. Depending on your purchase process settings, you may need to have the co-manufacturer listed as a supplier in order to add this product to the order. 


Authorise the purchase order. 


This automatically creates a production order, no sales order is required. The production location is set to the purchase location and cannot be changed. If there are not enough components in stock to complete the production order, purchase order authorisation will also create replenishment purchase orders depending on your production settings. 


Filling out and authorising a purchase invoice will start the production run and co-manufacturing operation for the invoice quantity. Multiple purchase invoices, and thus multiple production runs, can be created per purchase order. 


When procurement mode is set to Transfer components to co-manufacturer, authorising a purchase invoice/starting co-manufacturing operation will also create a transfer order for the required components. When procurement mode is set to Buy/Sell of components, authorising a purchase invoice will create a sale order for the components instead with the supplier as a customer. 


NOTE: You can view related orders at any time by going to the Related Orders tab of the co-manufacturing production order, or of the purchase order that raised it.

Next, you will manually need to complete the replenishment purchase/transfer orders (if applicable), and when the components are in stock, manually complete the transfer order/sale order to send the components to the co-manufacturer. 


When the finished goods are received from the co-manufacturer, enter the Stock Received in the purchase order and authorise. Multiple stock received actions can be created for each purchase order. When stock received equals invoice quantity, the production run linked to that invoice will be completed. It is possible for one invoice to cover multiple stock received actions, or vice versa. 


Authorising stock received for all invoiced products will complete the co-manufacturing operation, production run, and production order. 

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